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Growth already down, India faces continued food price woes

Central bank appears helpless to rein in inflation where it hurts the most
India food pricesEnlarge
Activists from India's leftist parties listen to speeches during a protest against corruption and rising food and essential commodity prices, in New Delhi on June 15, 2011. Some 400 activists protested against a wide range of alleged corruption scandals which have rocked the government of Prime Minister Manmohan Singh. (RAVEENDRAN/AFP/Getty Images)

Even as India's economic growth dipped below 8 percent -- marring the feel-good story of the world's second-hottest economy -- food inflation again soared to double digits in August, reports the Hindustan Times.

That puts the government, and the central bank, in a serious bind, suggesting that changes to monetary policy may be able to slow down the economy but the usual tools in the Reserve Bank of India's toolbox are useless in taming inflation where it hurts the most.

The government could consider duty cuts in essential commodities to shore up supplies, but that will entail forgoing tax revenues, which in turn,will likely upset the fiscal deficit targets, the paper said.

Finance minister Pranab Mukherjee on Thursday termed the inflation rate as "disturbing," obliquely hinting that the government may not be averse to taking measures to boost supplies.

The RBI, which will present its mid-quarter monetary policy review in September, has raised interest rates by 11 times in the past 16 months. But HT quotes at least one economist who expects another rate hike next month.

Things could be worse, of course.  In January, food inflation topped 18 percent, compared with around 10 percent recorded for the week ended August 20.  But the underlying problem that GlobalPost identified then still exist:

Since coming to power for its first term in 2004, the UPA has sought in vain for "inclusive growth" that will bring the rural poor out of poverty as rapidly as it creates wealth for the elite and middle class. The stopgap answer has been social welfare programs like the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS), which ensures that rural laborers get 100 days of work per year. But economists argue that the NREGS has only driven up prices, especially for items like milk, eggs and vegetables, as the poor begin to buy better food and change the ratio of demand to supply.

http://www.globalpost.com/dispatches/globalpost-blogs/the-rice-bowl/growth-already-down-india-faces-continued-food-price-woes